TLDR
- SEC Commissioner Crenshaw warns against “regulatory Jenga” approach to crypto under Trump administration
- Crenshaw claims the SEC’s “about-face” on crypto undermines agency credibility and expertise
- Republican commissioners welcome the agency’s new crypto approach, arguing against “regulation by enforcement”
- Agency has lost nearly 15% of staff in recent months amid policy shifts
- Crenshaw references 2022 FTX collapse as evidence of crypto risks that “have not gone away”
In a sharp rebuke of the Securities and Exchange Commission’s current regulatory approach, Commissioner Caroline Crenshaw has warned that the agency is “playing a game of regulatory Jenga” with its handling of cryptocurrency markets. Speaking at the SEC Speaks event on May 19, Crenshaw, the SEC’s last remaining Democratic commissioner, expressed deep concern over what she described as the dismantling of crypto regulations under the Trump administration.
Crenshaw likened market stability to a “Jenga tower” of rules that the SEC had “carefully developed over the years.” She cautioned that this structure could collapse if certain regulations were removed without proper consideration of their interconnected nature.
The commissioner highlighted several troubling trends at the agency. First among these was a major loss of institutional knowledge, with nearly 15% of SEC staff having departed through retirement, resignation, or termination. She characterized these departed employees as experts who had “weathered market events of all shapes and sizes.”
Another concern raised by Crenshaw was the use of staff guidance to effectively reverse rules without thorough analysis or public comment. She pointed to recent guidance on meme coins, crypto mining, and other areas as examples of this approach.
Enforcement Concerns
“Our statements on these crypto-related issues are the equivalent of a wink and nod intended to convey that we do not plan to rigorously apply our laws in certain, specific situations,” Crenshaw stated during her remarks.
She further criticized what she termed “regulation by non-enforcement,” saying the SEC has abandoned enforcement actions, especially in crypto markets. This shift represents a major departure from the agency’s previous approach.
Crenshaw, who had opposed the SEC’s settlement with Ripple, pointed to the 2022 FTX collapse as an example of what can happen during a “large-scale crypto crisis.” She warned that such risks have not disappeared despite decreased calls for regulatory oversight.
The commissioner also expressed worry about the SEC’s changing stance on previously adopted rules. She noted that this pattern of undoing the work of prior Commissions undermines the agency’s reputation and credibility.
Crenshaw’s concerns stand in stark contrast to the views expressed by the SEC’s Republican commissioners at the same event.
Republican Response
SEC Chair Paul Atkins struck a different tone in his remarks, stating that “crypto markets have been languishing in SEC limbo for years.” He suggested the agency should avoid stifling innovation among crypto companies.
Commissioner Hester Peirce, who now heads the SEC’s Crypto Task Force, claimed the agency’s approach under the Biden administration “evaded sound regulatory practice and must be corrected.” Peirce also argued that most existing crypto assets are not securities and therefore don’t fall under SEC jurisdiction.
Similarly, Commissioner Mark Uyeda stated that the SEC “should undertake efforts to provide assurances that regulation by enforcement will not be a tool used for future policymaking.”
The divergent views highlight the politically charged nature of crypto regulation within the SEC. Crenshaw’s remarks suggest deep divisions within the agency on how to approach this evolving market.
She concluded her remarks with a warning about the risks of deregulation during times of market complexity. Crenshaw drew parallels to the 2008 financial crisis, noting that the bipartisan Financial Crisis Inquiry Commission found that crash was avoidable and resulted from “decades of deregulation and reliance on ill-advised self-regulation.”
“Tomorrow’s hindsight is today’s foresight,” Crenshaw cautioned. “We cannot play games with the institutional integrity of the SEC – and the integrity of our markets – and expect that we won’t ultimately lose.”
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